Exclusive - 4.6bn nursery sector outperforms economy

The annual Children's Nurseries UK Market Report finds that the children's nursery market grew well ahead of the economy in 2012/13, rising 2.7 per cent in real terms.

It attributes the rise in value to an increase in demand for childcare - particularly a rise in the population of children under three in nurseries, which grew for the first time since 2007.

The total number of children attending nurseries is up by 1.6 per cent and children are attending for more hours on average than in the previous year.

The report also says that children's nurseries fared better than other services and industries during the recession in 2008 and 2009, and that its value grew 'modestly'.

The report's author, Philip Blackburn, told Nursery World that there was a lot of optimism in the sector.

'A lot of businesses expect performances to improve. We should get a bit of growth this year, more than 2 per cent.'

Although lenders were now 'stricter' he said that banks were also 'happy to lend in this climate'.

'Underlying the sector is very strong population growth. The customer base is expanding, and that is arguably what is driving the growth in the sector,' he added.

 UK CHILDREN'S NURSERY MARKET IN FINANCIAL YEAR 2012/13

In addition to more under-threes in nurseries, figures also show that there was 'marginally' more demand for childcare as a whole in the past year, and that most of the growth was in nursery groups that hold a larger share of the market.

Market growth in 2012/13 was driven by more demand for childcare for children under three, with a rise to 11.5 per cent of the total under-threes population in nurseries. This is the first increase since 2007, when - pre-recession - 14 per cent of under-threes were in nurseries.

Government funding for two-year-olds partially contributed to this, but demand for under-twos also strengthened.

However, demand for places for threeand four-year-olds in nurseries fell slightly during the year, from 18.8 per cent to 18.4 per cent, due to increased competition from schools and a decrease in local authority funding. Local authority funding rose on average by just 1.4 per cent, a fall in real terms.

Mr Blackburn said that a lot of excess supply had disappeared, filtered out by the economic depression.

What is notable is the 'corporatisation' of the sector - the growth and development of nursery groups, which he said are growing their share of the sector on average by 1 per cent a year.

Nursery groups - that is those with three or more nurseries - account for nearly a quarter of the sector's capacity (22.7 per cent in June 2013).

This is up from 21.8 per cent in March last year, which the report says shows that 'further corporatisation within the children's market is driving capacity growth'.

Average occupancy of nurseries operated by groups was 81 per cent in June 2013, compared to an overall average of 80 per cent for all nurseries.

The average size of nursery settings has also increased and now stands at 47 places, but the total nursery stock did not increase.

Demand for childcare

Laing and Buisson predicts that Government funding for two-year-old places could potentially increase demand by ten to 15 per cent for nurseries overall - equivalent to 90,000 places.

However, this will be dictated by the adequacy of local authority funding, as Government subsidies become a larger amount of income for nurseries.

Mr Blackburn said that many nurseries are accommodating the offer 'without making significant investment' in expanding their premises.

Childcare Vouchers

The report notes that June 2013 is a record high for corporate funding for childcare - that is, childcare supplied by employers, either through workplace nurseries or childcare voucher schemes. Fee income funded this way is now worth 30.6 per cent.

Total corporate spending on nursery services in the UK is estimated at £1.4bn for 2012/13. Laing and Buisson estimates that two-thirds of corporate funding is through childcare vouchers, which is now worth £925m-£950m for 2012/13.

Fees

The report finds that nursery fees are not growing ahead of inflation and that fees are fairly static.

Average full-time fees for nursery groups were estimated at £197 a week in June 2013, which is 13 per cent higher than fees across all nurseries.

The report attributes this to longer opening hours - 10.5 hours a day compared to an average of 9.5 - and the domination of the group sector by for-profit providers.

Local authority fees are on average £153.50 a week, with the voluntary sector charging an average of £146 a week.

Risks

Mr Blackburn said that he was 'slightly sceptical' about whether schools posed a 'significant threat', despite the Government's push towards childcare provision in schools. 'I don't think a lot of schools are pushing for childcare.' He said that many of them preferred to work in a partnership model with providers.

He acknowledged that the maintained sector was suffering with cuts to children's centres and the removal of nursery provision from centres.

'More children's centres are going to be merged and daycare is disappearing.'

Some voluntary sector and social enterprise providers, such as The Co-operative Childcare and the London Early Years Foundation, were doing well, but those that had heavily invested in children's centres were more vulnerable, he said.

Mr Blackburn also cited a decline in the sector's population growth from around 2020 and under-funding of two-year-old places as potential risks.

Comment from Purnima Tanuku, chief executive of the National Day Nurseries Association

'The report picks up on a fall in the number of three and four-year-olds in day nurseries, which it puts down to increased competition from schools and a decrease in local authority funding for free places. Both are issues which are causing concern in the nursery sector.

'Funding for free places is an on-going problem for nurseries with surveys of our members showing typical losses of £700 a year, per child, per funded place for three- and four-year-olds. Politicians from every political party have made it clear childcare is high up on their agendas, but unless the funding structure is given a total overhaul the sector will be unsustainable.

'Very young children spending their early years in a school environment could be a cause of concern for childcare providers. The school inspection process is totally different to the specific early years inspection nurseries are regulated on. There is the worry children will be expected to fit into the school environment rather than the other way round. 

'This year’s Government rollout of funded places for disadvantaged two-year-olds will have influenced the highlighted market growth for under-threes with more to come next year. This, coupled with the population growth which will see a marked increase in the number of under-fives, means we need a robust sector to be able to provide enough places in the future.'

• The report is available for £820, www.laingbuisson.co.uk